“I am not suggesting that the US is in great shape. I am suggesting that world is in worse shape, and the US has the flexibility and resources to reshape the global balance. […]This seems to be something that not many people in Washington believe. The lack of confidence is so deep that several times I heard people refer knowingly to the Chinese fiscal stimulus (yes, that vague, risky, and hard-to-understand stimulus package) as the ‘gold standard’ of economic stimulus packages. Gold standard? Really? The only way this can be true is if every other stimulus package in the world is total garbage.”

The above-market interest rates for CPFF, etc. are encouraging, since it permits such programs to naturally wither as market recovery permits the reemergence of affordable private funding. The plan to hold MBS long-term is less encouraging, as it bespeaks a desire to subsidize mortgage rates for years to come (indefinitely?). As though we don’t already overallocate enough resources to housing.

Interesting. So the key issue isn’t (solely) whether China becomes more reluctant to hold Treasuries (although certainly remains important). There’s also the question of whether the private sector will be able & willing to absorb 2009’s explosion of Treasury issuance.

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